The Rise And Fall Of Enron

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Introduction Enron began as an energy company in 1985. After the deregulation of oil and gas in the U.S., Enron lost its’ exclusive rights to natural gas pipelines. The CEO, Kenneth Lay then hired a consulting firm to reinvent the company in order to make up lost profits. He hired Jeffery Skilling, who was in banking, specifically; asset and liability management. Under the topic “The Beginning Presages the End”, C. William Thomas (2002) writes: “Thanks to the young consultant, the company created both a new product and a new paradigm for the industry—the energy derivative.” When Skilling’s plans were very profitable, he was promoted to COO of the trading division. With this success, he hired Andrew Fastow; who became CFO Chief…show more content…
Lay retired early and sold his stock before Enron’s collapse. After all was revealed in the financial statements, Skilling was fired. He too, made millions of dollars from Enron in salaries, shell companies, stocks and other perks. In analyzing the data from Enron’s financial statements, the clues were there for all to see. Prior to the decrease in its’ stock price and before the subsequent bankruptcy, these numbers told the story of impending doom for this company. Ultimately, revealed in the financial statements was the reality of the business’ liability to owner’s (stockholder’s) equity ratio. In the case of Enron, “Corporations refer to total owner’s equity as total stockholders’ equity” (Warren & Reeve, et al, 2014, p.21). The story it told, was not good. This company was at risk of defaulting on its’ obligations. The stockholders would not be able to recoup their losses from the worthless stock. When Greed Corrupts Enron made billions in profits in the early years, until deregulation promoted competition from other companies. When this happened, Kenneth Lay, CEO and Jeffery Skilling, COO went on a mission to keep the company on top. These two top executives wanted to keep the billion dollar bottom line alive; at any cost. The more the executives made in profits, the further away from GAAP, the financial statements strayed. They obscured the reality of the business’ rising debt by hiding liabilities and failing assets. Author C. Thomas
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